1994 (4) TMI 61 - HC - Income Tax

Summary

Issues Involved:
1. Classification of income from Modi Bhawan.
2. Deductibility of expenses for repairs and depreciation.
3. Allowance of depreciation on a specific amount spent on Modi Bhawan.

Summary:

Issue 1: Classification of Income from Modi Bhawan
The primary issue was whether the income from Modi Bhawan should be assessed under the head "Business" or "House property." The Tribunal held that the income should be assessed under "Business" because the property was used for business purposes by the assessee-company. The High Court upheld this view, noting that the property was occupied by nominee directors of the managing agents for business purposes, which is subservient to the main business of the assessee-company. The Court referenced previous judgments, including CIT v. Delhi Cloth and General Mills Co. Ltd. [1966] 59 ITR 152 and New Bank of India Ltd. v. CIT [1983] 140 ITR 132, to support the conclusion that the property used for residential purposes by employees or directors for business purposes should be assessed under "Business."

Issue 2: Deductibility of Expenses for Repairs and Depreciation
The Tribunal allowed the deduction for actual repairs and depreciation as business expenses. The High Court agreed, stating that since the property was used for business purposes, the expenses incurred on repairs and depreciation are deductible under the head "Profits and gains of business." The Court emphasized that the occupation of the property by the nominee directors was for the efficient running of the assessee-company's business, making it eligible for such deductions.

Issue 3: Allowance of Depreciation on a Specific Amount Spent on Modi Bhawan
In Income-tax Reference No. 70 of 1982, the issue was whether depreciation should be allowed on a sum of Rs. 1,09,876 spent on Modi Bhawan. The Tribunal directed that depreciation be allowed on this amount, and the High Court upheld this direction, consistent with its findings that the property was a business asset used for business purposes.

Conclusion:
The High Court concluded that the income from Modi Bhawan should be assessed under "Profits and gains of business" and not under "Income from house property." Consequently, the assessee is entitled to deductions for actual repairs and depreciation. The questions in both references were answered in the affirmative, in favor of the assessee and against the Revenue. There was no order as to costs.